Small manufacturers show the most positive growth in Britain’s SME sector

With the welcome exception of manufacturing, the pace of recovery among Britain’s small businesses appears to have paused over the past quarter according to the Quarterly Survey of Small Business in Britain, which is produced by The Open University Business School and supported by ACCA (The Association of Chartered Certified Accountants) and Barclays Business.

After 18 months of steadily rising sales balances¹, they dipped back downwards towards the end of 2010 as more firms reported falling sales. Overall employment performance balances (-9%) were even worse, falling below those recorded in the previous quarter. This employment balance has now remained negative for more than two years.

However, the upturn in sales balances among small manufacturers identified in the previous survey has continued (from +9% to +14%). They are the most optimistic sector for the coming quarter (+23%) and report the highest positive expected investment balance (+5%). This is despite on-going problems with the external business climate, competition and inflation. The Survey findings suggest that inflationary pressures are influencing pricing decisions in many sectors, with a balance of +25% for small manufacturers and wholesalers expecting to increase their prices, and even higher balances for small retailers (+39%) and the agricultural sector (+29%).

Small firms in the East Midlands continue to thrive. For the third quarter in a row, they have reported the best sales performance (+35%). The East Midlands and the North East were the only regions with positive employment balances over the past year (+5% and +4% respectively).

Dr Richard Blundel of the Open University commented: "With such persistent concerns over business conditions, it is hard to see how the small business sector can provide sufficient opportunities to absorb the expected flow of workers from the public sector. Yet it looks increasingly like this task is falling to the traditional heartland of the UK economy – the manufacturing sector."

About the researchThe findings have been published in The Quarterly Survey of Small Business in Britain, conducted by the Open University Business School and supported by ACCA (the Association of Chartered Certified Accountants) and Barclays Bank. The report is now in its 26th year. The 826 firms that responded to the survey are drawn from two sources – 230 members of the OUBS small enterprise database of past quarterly survey respondents who responded online; plus some 596 small businesses with a turnover of £50,000 - £1 million drawn from a structured database that reflects the distribution of industries in Britain (this sub-sample was recruited and interviewed by telephone by BDRC Continental). The online interviews were completed during Janurary and February 2011; the first wave of telephone responses was gathered in January 2011 and the second wave in February 2011. Sectors covered include: health & education, transport & travel, retail, hotels & restaurants, agriculture & forestry & fisheries, business services, wholesale, construction and manufacturing. The firm-size definition used in the survey employee-based: sole-proprietor = 0 (only the owner); 1-9 = microfirms; 10 – 19 = small; 20+ = medium.

¹Following the well-established practice of the CBI in its Industrial Trends Survey, a summary statistic, the balance, is used to monitor the responses to key questions. The balance is the percentage of respondents replying ‘up’ minus the percentage replying ‘down’ (we ignore, for this purpose, the percentage replying ‘same’).